How does Budget account for changes in the value of nonmarketable equity securities?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
We classify investments without readily determinable fair values that are not accounted for under the equity method as nonmarketable equity securities. The accounting guidance requires nonmarketable equity securities to be recorded at cost and adjusted to fair value at each reporting period. We apply the measurement alternative, which allows these investments to be recorded at cost, less impairment, if any, and subsequently adjust for observable price changes of identical or similar investments of the same issuer. Any changes in value are recorded within operating expenses. As of December 31, 2024 and 2023, our nonmarketable equity securities within non-current assets on our Consolidated Balance Sheets were not material and no material adjustments were made to the carrying values of these securities during the years ended December 31, 2024, 2023 or 2022.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the company addresses the valuation of nonmarketable equity securities by recording them at cost and adjusting them to fair value at each reporting period. Investments lacking readily determinable fair values and not accounted for under the equity method are classified as nonmarketable equity securities. Budget applies a measurement alternative, allowing these investments to be recorded at cost, less impairment, with subsequent adjustments made for observable price changes of identical or similar investments from the same issuer.
Any changes in the value of these securities are recorded within operating expenses. This means that if the fair value of a nonmarketable equity security increases, the gain is recognized as a reduction in operating expenses, while a decrease in fair value results in an increase in operating expenses. This approach directly impacts Budget's reported operating income.
The FDD indicates that as of December 31, 2024, and 2023, Budget's nonmarketable equity securities within non-current assets on their Consolidated Balance Sheets were not material. Consequently, no material adjustments were made to the carrying values of these securities during the years ended December 31, 2024, 2023, or 2022. This suggests that, historically, fluctuations in the value of these securities have not had a significant impact on Budget's financial statements. However, prospective franchisees should be aware of this accounting treatment, as any future material changes in the value of nonmarketable equity securities could affect Budget's reported financial performance.